Affluent customers help M&S defy the downturn

The company defied the gloom elsewhere on the high street, beating sales forecasts for the 13 weeks to April 2.

The group, run by former Morrisons chief executive Marc Bolland, said innovative products such as stormproof suits and comfortable killer heels are luring in shoppers.

In addition the retailer’s big push for Valentine’s and Mothers’ Days paid off as the group reported “very strong” sales from both.

“Shoppers see so much negative news they want to celebrate the things that are good,” said Mr Bolland.

Unlike most of its rivals, M&S made a big deal of both events promoting sparkling wine, chocolates, gifts, cards and flowers in prominent positions.

Mr Bolland said M&S is benefiting from the pain elsewhere on the high street. “Instead of buying a big ticket item, people buy something that is an affordable treat but is quality.”

M&S’s average selling prices for spring rose by six per cent, reflecting both the rise in VAT and shoppers trading up.

“People have started to buy more quality, we’ve seen a move from good to better to best,” said Mr Bolland.

New innovations are also going down well with customers who are keen to buy affordable treats.

M&S saw a 70 per cent jump in sales of comfort-focused Insolia high heels on the back of an advertising campaign starring model Lisa Snowdon.

A campaign featuring former soccer star Jamie Redknapp also helped the group’s Stormwear men’s range report a 27 per cent rise in sales.

The group’s shares closed up six per cent last night, a rise of 20p to 360.6p.

“Despite some of the things that we’ve heard we have not seen any dip or blip or wall. Customer confidence is low but held stable,” said Mr Bolland.

But he warned that trading will get tougher as shoppers are hit by Government cutbacks, rising prices, muted wage growth and a possible interest rate rise.

“We see an environment out there that for the coming year will be absolutely challenging because commodity pricing is up and we know that discretionary spend will be down,” he said.

A number of retailers including Argos, Dixons, Mothercare and HMV have issued profit warnings in recent weeks, raising fears ahead of M&S’s trading update.

But the group, which serves 21 million consumers a week, said like-for-like UK sales rose 0.1 per cent in the 13 weeks to April 2, its fiscal fourth quarter.

This was down on a 2.8 per cent increase in the third quarter, but well above analysts’ forecasts for a two to four per cent fall.

Stripping out adverse calendar effects, underlying sales were up 2.2 per cent, and M&S said it gained 30 basis points of market share in non-food goods and 10 basis points in food.

Like-for-like non-food sales fell 3.9 per cent, less than expected, as strong sales of menswear and lingerie helped to mitigate the negative calendar effects.

Food sales rose strongly, up 3.4 per cent, helped by over 320 new products and strong sales of healthy meal brands ‘Count on Us’ and ‘Simply Fuller Longer’.

As well as customers trading up and treating themselves, M&S also saw people showing signs of frugality. The decision to keep prices low on key staples such as tights has paid off and Mr Bolland said the group sold 115,000 boxes containing five pairs of tights for £2.50 in its fourth quarter.

Nomura analyst Fraser Ramzan said: “Consumers are becoming picky, and M&S’s offer of affordable quality is the best for two years, in our view, driven by foods innovation and more focused buying of best sellers in clothing.”

‘We’re in for a slow recovery’

Terry Leahy, the former boss of supermarket giant Tesco, has dismissed predictions of a major consumer downturn, saying a slow and steady recovery will come through when oil prices stabilise.

“I think we are in recovery. The economy will grow this year. It will be slow and steady,” he said.

Mr Leahy said consumers will start to feel better once oil prices stabilise, and that could come through in the second half of the year.

“We need the oil price to stabilise,” he said.

“In the second half you’ll be beginning to lap the big increase in the oil price,” he added.